How should a court set the negligence standard in a given area of activity when future (potential) injurers or victims are unlikely to know the standard set by the court? In particular, how should the standard be set in the oft-occurring case where one of the future parties is a professional actor who is likely to know the legal standard of negligence, while the other is an amateur, who is unlikely to know it? In this case, it may be optimal for the court to set the standards at the first-best level despite the amateur's ignorance of the law. The amateur may be able to infer the standards, either from the situation itself (from his knowledge of the costs and benefits of precautions), or from the act performed by the professional party. Moreover, the amateur may take due care because he realizes that the professional party will have an incentive to live up to the standard, and that the risk of a loss will therefore be on the amateur. However, when the ignorance of the amateur is "large," involving not only the legal standards but also the risks inherent in the activity, it may well be optimal for the court to depart from first best standards.

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This is not a theoretical paper but an application of existing law and economic contract theory to the issue of how to draft a specific kind of contract. It is addressed to practitioners and is intended for practical use. It will be part of a Wiki (as in Wikipedia) for contract drafting, which IACCM (International Association for Contract and Commercial Management) has initiated. The main theoretical aspect of the article concerns the application of the value maximization principle (the Coase theorem) to the drafting of confidentiality agreements. While the article is not theoretical, its prescriptions are open to theoretical dispute; this may especially be the case for the section on the size of damages.

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This article derives key variables in the analysis of standards of proof in criminal law from basic conditional probabilities. The variables derived are the probability of correct and wrongful conviction, the expected sanction and society's incarceration costs, while the basic conditional probabilities are the probability of observing (any given) evidence against individual i given that individual j committed the crime (for any j including j equal to i). The variables are derived from the conditional probabilities as a function of the standard of the proof using simple Bayesian updating.

This paper takes an economic approach to investigate the role of geographical proximity for organizing new product development (NPD) activities within inter-firm linkages. Product development theory and the resource-based view is discussed from an inter-firm perspective and contrasted to arguments in the literature on geographical economics. The approach in this paper assumes that geographical proximity is crucial for inter-firm learning, knowledge transfer and creation of capabilities to a higher extent in inter-firm linkages with a high level of interaction, in industries where knowledge is relatively more important as a resource and where collaboration partners are important. Hypotheses are tested by means of a quantitative analysis of a data set containing information about 4842 domestic and international inter-firm linkages of Danish firms in manufacturing industries. The findings in this analysis exhibit low support for the general role of geographical proximity for organizing NPD activities within inter-firm linkages. The result suggests that geographical proximity seems to play a role in inter-firm linkages in few cases. For instance, it is shown that knowledge intensive firms exhibit a propensity for international linkages. It is further suggested closer geographical distance for inter-firm linkages with medium and high level of interaction, suppliers or customers accounting for more than one third of total purchases or sales, and for linkages lasting for at least 10 years.
Key words: capabilities, economics of localization, innovation, inter-firm linkages, knowledge, product development, proximity, resources
JEL-codes: L23, L60, O32

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How firms organize the production of user modifications in the computer games industry

Jeppesen, Lars Bo(København, 2004)

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Modding – the modification of existing products by consumers – is increasingly exploited by manufacturers to enhance product development and sales. In the computer games industry modding has evolved into a development model in which users act as unpaid "complementors" to manufacturers’ product platforms. This article explains how manufacturers can profit from their abilities to organize and facilitate a process of innovation by user communities and capture the value of the innovations produced in such communities. When managed strategically, two distinct, but not mutually exclusive business models appear from the production of user complements: firstly, a manufacturer can let the (free) user complements "drift" in the user communities, where they increase the value to consumers of owning the given platform and thus can be expected to generate increased platform sales, and secondly, a manufacturer can incorporate and commercialize the best complements found in the user communities.
Keywords: innovation, modding, user communities, software platform, business model.
JEL code(s): L21; L23; O31; O32

The paper analyses management of product innovation in project-based industries, offering a view on management not only of firms, but also of markets. It first argues that projects are prominent in industries where the nature of consumer demand means that product innovation takes place as experimentation. Then, the paper argues that if skills needed for projects are very diverse and projects are complex, there are few internal managerial economies of projects, and the scope for management then transcends the boundaries of firms. In these cases, markets become organized in combinations of people, contracts, and other institutions, in order to facilitate the coordination of market-based projects. While contracts play a role, a continuous, active role of knowledgeable managers (leaders and boundary spanners) is also often necessary. Such managers --- and thus (core parts of) whole industries --- are embedded in project ecologies at particular places, which is why we see geographical clusters in many project-based industries. The paper is mainly conceptual, but develops its argument by drawing examples from the Entertainment industries throughout.
Keywords: Project organization, product innovation, portfolio management of projects, entertainment industries
JEL Classification: L22, O31, L82

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The personal attributes of innovative users in the case of computer-controlled music

Jeppesen, Lars Bo; Frederiksen, Lars(København, 2004)

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Studies of the sources of innovations have recognized that many innovations are developed
by users. However, the fact that firms employ communities of users to strengthen their innovation
process has not yet received much attention. In firm-established user communities users freely reveal
innovations to a firm’s product platform, which in turn puts the firm in a favorable position (a) because
these new product features become available to all users by sharing on a user-to-user basis, or (b)
because it allows the firm to pick up the innovations and integrate them in future products and then
benefit by selling them to all users. We study the key personal attributes of the individuals responsible
for innovations and the creation of value in this organizational context, namely the innovative users, to
explain why firm-established user communities work. Analyzing data derived from a web-based
questionnaire generating 442 answers we find that innovative users are likely to be (i) hobbyists, an
attribute that can be assumed to affect innovators’ willingness to share innovations (positively), and (ii)
responsive to "firm-recognition" as a motivating factor for undertaking innovation, which explains
their decision to join the firm’s domain. In agreement with earlier studies we also find that innovative
users are likely to be "lead users", an attribute that we assume to affect the quality of user innovation.
Whether or not a firm-established user community can be turned into an asset for the firm is to a great
extent conditioned by the issues studied in this paper.
Keywords: Innovation, User community, User Characteristics
JEL code(s): L21; L23; O31; O32

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This paper explains two fundamental approaches to knowledge management. The tacit
knowledge approach emphasizes understanding the kinds of knowledge that individuals
in an organization have, moving people to transfer knowledge within an organization,
and managing key individuals as knowledge creators and carriers. By contrast, the
explicit knowledge approach emphasizes processes for articulating knowledge held by
individuals, the design of organizational approaches for creating new knowledge, and
the development of systems (including information systems) to disseminate articulated
knowledge within an organization. The relative advantages and disadvantages of both
approaches to knowledge management are summarized. A synthesis of tacit and
knowledge management approaches is recommended to create a hybrid design for the
knowledge management practices in a given organization.

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The Effects of International Trade Fairs, Conventions and Other Professional Gatherings

Maskell, Peter; Bathelt, Harald; Malmberg, Anders(København, 2004)

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Business people and professionals regularly come together at conventions,
congresses, conferences, trade fairs and exhibitions. Here, their latest and most advanced
findings, inventions and products are revealed and evaluated by peers and competitors, as
well as by customers and suppliers. Organising or participating in such events are means to
identify the current market frontier, take stock of relative competitive positions and form
future plans. These events exhibit many of the characteristics ascribed to permanent
clusters, albeit in a temporary, periodic and intensified form. The temporary clusters are
hotspots of intense knowledge exchange, network building and idea generation.
In investigating the extent and nature of these phenomena, the present paper explores a
number of issues. First, it shows that international trade fairs and other professional
gatherings are events which enable firms to compare their own products with others which
are available to the world market. Comparisons to and interactions with other firms
stimulate processes of knowledge creation. Second, it demonstrates how trade fairs are
important for firms when selecting partners with whom to develop global pipelines,
enabling access to distant markets and technologies. Third, it compares such temporary
clusters with permanent territorial hubs within their respective sector or industry. If regular
participation in temporary clusters could satisfy a firm’s need to learn through interaction
with suppliers, customers, peers and rivals, why is the phenomenon of permanent clustering
so pervasive?
The answer, it is claimed, lies in the restrictions imposed on economic activity when
knowledge and ideas are transformed into valuable products and services. The paper sheds
new light on how interaction among firms in current clusters coincides with the
configuration of knowledge-intensive pipelines out of the cluster. It examines the
procedures selected by firms in developing ideas or gaining access to new knowledge and
compares these organisational forms to those chosen when using knowledge for commercial
purposes.
Keywords: economic geography, knowledge creation, clusters, temporary clusters, trade
fairs, conventions, pipelines
JEL-codes: D83, L22, O17, O18, R12

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Abstract: This study describes a process in which a firm relies on an external consumer community
for innovation. While it has been recognized that users may sometimes innovate, little is known about
what commercial firms can do to motivate and capture such innovations and their related benefits. We
contribute to the strategy literature by suggesting that learning and innovation efforts from which a
firm may benefit need not necessarily be located within the organization, but may well reside in the
consumer environment. We also contribute to the existing theory on "user-driven innovation" by
showing what firms purposively can do to generate consumer innovation efforts. An explorative case
study shows that consumer innovation can be structured, motivated, and partly organized by a
commercial firm that lays out the infrastructure for interactive learning by consumers in a public
Keywords: Product Development, Consumer-to-Consumer Interaction, Learning, Consumer Innovation, Community, User-toolkits.
JEL code(s): L21; L23; O31; O32